Largest decline in the production of capital goods for six years
ONS figures today show manufacturing output falling -0.5 per cent between December 2014 and January 2015.
Overall, the index of production (which includes energy use and extraction) fell by only -0.1 per cent, because mining and quarrying rose by 2.0 per cent (related to the extraction of crude petroleum and natural gas).
More generally, manufacturing output has slowed significantly since a brief period of gains over 2013 and into the first half of 2014: growth in the first half of 2014 was 2.0 per cent and then in the second half only 0.6 per cent.
But the latest figures are most interesting for the scale of the fall in the production of capital goods, with January declining by -3.7 per cent on the month. This is the largest monthly decline for six years – last larger in January 2009 when output fell by -5.6 per cent in the course of the great recession. These figures echo the weakness in business investment seen in national accounts data for the second half of 2014.
By industry, this decline was driven by falls of:
- -9.5 per cent in ‘computer, electronic and optical products’ (only one larger monthly decline on records that extend back to 1997, 16% in Jan 2002)
- -3.0 per cent in electrical equipment (largest decline only since Oct 14)
- -7.0 per cent in ‘machinery not elsewhere classified’ (only two larger declines on record, -16% in Jan 2013 and -9% in Jan 09)
The repeated occurrence of ‘January’ in the records, might suggest an erratic seasonal factor at play.
Nonetheless, manufacturing is unambiguously weaker, and industry now has to confront the increased strength of sterling.